Why Minsky Matters

Good read by the Levy Economics Institute's L. Randall Wray on Hyman Minsky's life's work, and a great primer to Minsky's theorizing on the investment cycle – his financial instability hypothesis – which traces instability in an economy to private sector debt accumulation progressing through degrees of safety margins (ranging from hedge to speculative to Ponzi positions), everyone thinks asset prices will continue to soar and optimism wins the day...until the bubble bursts.

Equally fascinating is his “longue durée” theorizing of capitalism's stages, from commercial capitalism in the 19th century with commercial banks primarily financing production and lending to firms to accomplish such, to the finance capitalism described by Rudolf Hilferding (Minister of Finance in the Weimar Republic; you might recognize Hilferding's work which V.I. Lenin cites in “Imperialism: The Highest Stage of Capitalism”) and the domination of investment banks in financing high-risk speculative activities leading to the Great Depression, followed by managerial-welfare state capitalism with considerable more interventionist measures by the Federal Reserve and Treasury Dept. post-New Deal reforms, culminating where we are at now, money manager capitalism with the rise of shadow banking, non-bank actors that essentially serve banking functions but are not subject to the same regulations chartered banking institutions are (e.g. sovereign wealth funds, hedge funds, corporate treasuries) that played a significant role in Great Recession a decade ago.

And beyond that: a good primer to an economic framework that doesn't casually dismiss tangible analysis of institutions (private sector finance and banking, Federal Reserve and U.S. Treasury operations) and money, all of which critical to understanding how the contemporary capitalist system is mechanically constructed and operates in function – one critical mistake of many of the economics orthodoxy that causes it to be so blind to the state of what's really going on.